- FrontlineX is a new $80 million fund from London and Dublin-based VC Frontline Ventures.
- The firm previously focused on early stage European investments but this new fund will exclusively work with growth stage US SaaS startups looking to expand into Europe.
- The fund has identified four reasons why US software startups often fail when expanding to Europe, highlighting timing, hiring, and choice of country.
- "This is novel, nobody else is doing this and getting into the detail," Frontline partner and former Twitter and Google exec Stephen McIntyre told Business Insider in an interview.
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Frontline Ventures, a London and Dublin-based VC fund has launched FrontlineX, an $80 million fund that will be used to invest in growth-stage US B2B SaaS startups.
The goal is to help US software startups expanding into Europe, with Frontline finding that American firms expanding onto the continent often repeat the same errors.
The VC firm, founded in 2012, has crunched the data from hundreds of US startups expanding into Europe to identify the common mistakes. Among the four key issues that Frontline has identified are timing, hiring mistakes, country choice, and amnesia about what made a company successful in the US.
Frontline Ventures partner Stephen McIntyre helped Google and Twitter scale their European operations over a 10-year career before moving into VC and says that US software startups often underestimate expansion.
"This is novel, nobody else is doing this and getting into the detail," McIntyre told Business Insider in an interview. "Specialization is one of the few weapons that VCs have in a world of plenty of capital."
The fund isn't aiming to lead the rounds of buzzy US software startups but will instead partner with larger firms to help provide expertise.
The four key errors SaaS startups make during expansion
McIntyre says that some software-as-a-service (SaaS) companies try to expand to Europe at Series A stage when their teams are threadbare and expansion doesn't make sense, while others will move too late and be forced to fight copycat competitors in foreign markets.
Similarly, Frontline found that some SaaS startups tended to assume that getting boots on the ground in Europe in any capacity would be enough to build a successful revenue base. "The machine will be working well in the US and then in Europe they assume machine will work well from third gear but that's not how it works, there's usually no brand awareness, no hardcore community of product advocates, so you can't leapfrog product development," he said.
Another issue US startups face is where to base their expansion.
For obvious linguistic reasons, London and Dublin are popular choices, with the former possessing the majority of the best engineers and sales talent, according to McIntyre. However, many companies struggle in Germany and France, the continent's other largest economies, despite the massive revenue opportunities available to them.
"If you want short term success you can operate out of the UK but you need to crack Germany and France," McIntyre added. Germany is reputedly harder given a divide in SaaS adoption between the north and south of the country.
Finally, a bugbear for all startups is hiring. For US companies expanding into Europe, hiring mistakes can be harder to rectify. Hiring too junior or too senior early on is an issue but equally the multiple time zones and predominant email contact makes it harder for US-based management to realize a hiring issue or correct poor habits in situ.
McIntyre says the first six months of a startup's expansion are crucial, with his team working on timing, hiring, marketing, pricing, alongside office location and organizational design for the companies they work with. As part of the fundraise, FrontlineX has hired a partner in San Francisco, Brennan O'Donnell.
"Our plan is substance over marketing, there's of plenty of talk about value add but less actual work being done sometimes," he added.
FrontlineX has already made several investments from its fund including participating in the Series B of TripActions, a company that has gone on to raise from Andreessen Horowitz at a $4 billion valuation; People.ai's $100 million Series C together with Lightspeed, Andreessen Horowitz and ICONIQ; and Clearbanc's $50 million Series B with Emergence and Highland.
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